Cyanotech Corporation (Nasdaq Capital Market: CYAN), a world leader in microalgae-based, high-value nutrition and health products, today announced financial results for the third quarter and first nine months of fiscal year 2014, ended December 31, 2013.

Third Quarter 2014

For the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013, net sales were $7,438,000 compared to $7,242,000, an increase of 2.7%. Gross profit was $3,145,000, with gross profit margin of 42.3%, compared to gross profit of $2,865,000 and gross profit margin of 39.6%. Pretax income was $293,000 compared to $619,000, and net income was $36,000 or $0.01 per diluted share, compared to net income of $607,000 or $0.11 per diluted share.

Regarding the third quarter of fiscal 2014 results (changes shown versus the third quarter of fiscal 2013), Brent Bailey, President and CEO, stated, "Total company net sales growth was a modest +3% due to our inability to meet Astaxanthin demand. Our consumer products business (Nutrex) grew +37% in the quarter:

?       Nutrex Mainland:       +31%
? Nutrex Hawaii: +47%
? Nutrex Direct: +60%
? Nutrex International: +131%

"Retail sales growth of our Astaxanthin products in the U.S. natural products channel was +42% with a market share of 51.9% (+8.2 pts.). Our Spirulina retail dollar growth for the quarter was +28% with a market share of 47.2% (+2.3 pts.). A new, higher dose, 12 mg. BioAstin was launched last September and is now the #1 selling item on our website. In December we introduced a new Spearmint flavor Hawaiian Spirulina on our website. Initial results are very promising.

"Gross margin was up nearly +3 pts. due to strong Spirulina production, which has recovered after a difficult year and was up +39% versus third quarter fiscal 2013.

"We were unable to keep pace with Astaxanthin demand in the third quarter due to:

  • Continued strong growth of the Astaxanthin market.
  • Environmental factors that affected the quantity, but not the quality, of our output. Lower production rates are expected to continue through the fourth quarter of fiscal 2014. Since our bulk business utilizes the lion's share of our Astaxanthin raw material, it was disproportionately impacted.

"We have successfully completed an initial scale up of a +50% Astaxanthin productivity improvement, and feel there is upside beyond that. While this does not guarantee the same level of results in full production, we do expect it to improve output in the next fiscal year. Our extraction plant arrives in Kona early in fiscal 2015 and is expected to be producing by the end of the calendar year, enhancing efficiency and reducing production lead time.

"Operating income for the third quarter was below a year ago due to insufficient Astaxanthin production to meet demand, planned costs associated with people and infrastructure investments that are driving the strong top line growth we continue to see in our consumer business as well as an increase in legal costs."

At the end of fiscal 2013, the Company released a valuation allowance against deferred tax assets and now recognizes a provision for income taxes. As a result, the Company's effective tax rate increased beginning fiscal 2014. During the quarter ended December 31, 2013, the effective tax rate is higher than the statutory rate due primarily to stock option expenses that are not deductible for tax purposes. The provision for income tax is primarily non-cash as the Company is utilizing net operating losses (NOL's) for federal and Hawaii state income tax purposes. Pretax income for the third quarter was $293,000 compared to $619,000 for the third quarter of fiscal 2013.

First Nine Months 2014

For the first nine months of fiscal 2014 compared to the first nine months of fiscal 2013, net sales were $21,646,000 compared to $20,684,000, an increase of 4.7%. Gross profit was $8,990,000, with gross profit margin of 41.5%, compared to gross profit of $8,251,000 and gross profit margin of 39.9%. Pretax income was $764,000 compared to $1,608,000, and net income was $172,000 or $0.03 per diluted share, compared to net income of $1,576,000 or $0.28 per diluted share.

Trailing 12 Months

For the trailing 12 months ended December 31, 2013 compared to the trailing 12 months ended December 31, 2012, net sales were $28,543,000 compared to $26,670,000 an increase of 7.0%. Gross profit was $11,697,000, with gross profit margin of 41.0%, compared to gross profit of $10,304,000 and gross profit margin of 38.6%. Pretax income was $1,334,000 compared to $1,907,000, and net income was $2,805,000 or $0.47 per diluted share, compared to net income of $2,735,000 or $0.32 per diluted share.

About Cyanotech -- Cyanotech Corporation, a world leader in microalgae technology, produces BioAstin® Natural Astaxanthin and Hawaiian Spirulina Pacifica®--all natural, functional nutrients that leverage our experience and reputation for quality, building nutritional brands which promote health and well being. Cyanotech's Spirulina products offer complete nutrition, and augment energy and immune response. They are FDA-reviewed and accepted as Generally Recognized as Safe (GRAS) for use in food products. BioAstin's superior antioxidant activity and ability to support and maintain a natural anti-inflammatory response enhance skin, muscle and joint health. All Cyanotech products are produced from microalgae grown at our 90-acre facility in Kona, Hawaii using patented and proprietary technology. Cyanotech distributes to nutritional supplement, nutraceutical and cosmeceutical manufacturers and marketers in more than 40 countries worldwide. Cyanotech is GMP-certified by the Natural Products AssociationTM. Visit www.cyanotech.com for more information.

"Safe Harbor" Statement under the U.S. Private Securities Litigation Reform Act of 1995 Besides statements of present fact and historical fact, this press release may contain forward-looking statements. Forward-looking statements relate to the future and are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by forward-looking statements. We caution against relying on forward-looking statements. Important factors that could change actual, future results include: changes in sales levels to our largest customers, weather patterns in Hawaii, production problems, risks associated with new products, foreign exchange fluctuations, and availability of financing, as well as national and global political, economic, business, competitive, market and regulatory conditions. Other factors are more fully detailed in the Company's annual Form 10-K filings with the Securities and Exchange Commission.

(Financial Tables Follow: The following tables do not contain footnotes or other information contained in the Company's Form 10-Q for the period ended December 31, 2013. As such the following Financial Tables are provided only as a guide and other factors are more fully detailed in the Company's annual Form 10-K filings with the Securities and Exchange Commission.)

 
CYANOTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except par value and number of shares)

(Unaudited)

     
December 31,
2013		 March 31,
2013
ASSETS
Current assets:
Cash and cash equivalents $ 2,510 $ 4,364
Accounts receivable, net of allowance for doubtful accounts of $6 at December 31, 2013 and $6 at March 31, 2013 4,502 3,766
Inventories, net 5,230 3,688
Deferred tax assets 110 110
Prepaid expenses and other current assets 426 263
Total current assets 12,778 12,191
 
Equipment and leasehold improvements, net 11,366 8,835
Restricted cash 1,851 3,360
Deferred tax assets 3,034 3,429
Other assets 843 772
Total assets $ 29,872 $ 28,587
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 202 $ 128
Customer deposits 60 33
Accounts payable 2,437 1,852
Accrued expenses 831 872
Total current liabilities 3,530 2,885
 
Long-term debt, excluding current maturities 5,303 5,454
Deferred rent 18 21
Total liabilities 8,851 8,360
 
Commitments and contingencies
 
Stockholders' equity:
Common stock of $0.02 par value, shares authorized 50,000,000; 5,486,438 shares issued and outstanding at December 31, 2013 and 5,463,938 shares at March 31, 2013 110 109
Additional paid-in capital 29,698 29,077
Accumulated deficit (8,787 ) (8,959 )
Total stockholders' equity 21,021 20,227
 
Total liabilities and stockholders' equity $ 29,872 $ 28,587
 
 
CYANOTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 

(Dollars in thousands, except per share amounts)

(Unaudited)

   
Three Months Ended
December 31,		 Nine Months Ended
December 31,
2013   2012 2013   2012
 
NET SALES $ 7,438 $ 7,242 $ 21,646 $ 20,684
COST OF SALES 4,293 4,377 12,656 12,433
Gross profit 3,145 2,865 8,990 8,251
 
OPERATING EXPENSES:
General and administrative 1,685 1,175 4,502 3,608
Sales and marketing 1,011 1,004 3,195 2,722
Research and development 108 52 394 183
Loss on disposal of equipment and leasehold improvements 19 1 45 36
Total operating expenses 2,823 2,232 8,136 6,549
 
Income from operations 322 633 854 1,702
 
OTHER EXPENSE:
Loss on extinguishment of debt -- -- -- (51 )
Interest expense, net (29 ) (14 ) (90 ) (43 )
Total other expense, net (29 ) (14 ) (90 ) (94 )
 
Income before provision for income taxes 293 619 764 1,608
 
PROVISION FOR INCOME TAXES (257 ) (12 ) (592 ) (32 )
 
NET INCOME $ 36 $ 607 $ 172 $ 1,576
 
NET INCOME PER SHARE:
Basic $ 0.01 $ 0.11 $ 0.03 $ 0.29
Diluted $ 0.01 $ 0.11 $ 0.03 $ 0.28
 
SHARES USED IN CALCULATION OF NET INCOME PER SHARE:
Basic 5,486 5,464 5,475 5,451
Diluted 5,659 5,617 5,656 5,692

Cyanotech Corporation
Bruce Russell, (310) 346-6131
brussell@cyanotech.com